Avoiding the resource curse

By not extracting resources we can also avoid associated problems on a local scale. The so-called ‘resource curse’ is a well known problem also described as the ‘paradox of plenty’1–3. Data shows that many resource-rich countries often underperform economically compared to countries with fewer resources and also experience disproportionally higher levels of civil war.

The abundance of resources brings up governance challenges to often already-weak governments and governance systems especially as corruption is a common issue that constrains effective democracy. The strong reliance on the extractive sector furthermore hinders diversification and makes the economy highly dependent on world market commodity prices. Even in countries where there is no civil war or obvious macroeconomic problem, such as Ecuador and Peru, we see major conflicts arising at regional levels4,5. Arellano-Yanguasspeaks of a new type of resource curse where, for example, the current hunger for coal in Germany has led to huge environmental destruction in Colombia, even impacting agriculture and export of other goods5,6. Referring to a World Bank report, Temper et al argue:

In calculating ‘Adjusted Net Saving’ by subtracting some of the damage done by resource degradation and pollution, most primary commodity producers have a net negative saving. Hence, the increased GDP benefits from extraction of fossil fuels are offset by the damage done in that same process. This fact has been acknowledged in the 2011 World Bank book, The Changing Wealth of Nations, and in some cases, such as with Sub-Saharan Africa taken as a whole, by 2008 net negative savings reached 7% of Gross National Income.7

In other words, by leaving natural resources underground, the people of Sub-Saharan Africa would have been much wealthier than under circumstances generated by the contemporary Resource Curse.7